TSMC earnings weakest in years

LOOKING AHEAD Amid the severest slump in two decades, uncertain end-user demand means the company could see its first quarterly loss since the 1990s, it said

By Lisa Wang / STAFF REPORTER

Taiwan Semiconductor Manufacturing Co (TSMC, 台積電), the world’s top contract chipmaker, yesterday posted its weakest quarterly earnings in about six years as orders slowed from customers, but the chipmaker said the business may hit bottom in the unprofitable first quarter.

In the fourth quarter of last year, net income was NT$12.45 billion (US$371.7 million), down 64 percent from NT$34.48 billion a year ago, which marked TSMC’s lowest quarterly earnings since the third quarter of 2003, the company said in a statement. Shipments fell 35 percent.

Amid the severest slump in two decades, uncertain end-user demand meant the company could see its first quarterly loss since the 1990s this quarter, TSMC chief executive Rick Tsai (蔡力行) said.

“This is truly a difficult time for all of us at TSMC and for the whole [semiconductor] industry, I believe,” Tsai said.

Operating margin may plunge to between negative 19 percent and negative 15 percent in the current quarter, from 18.6 percent last quarter, the Hsinchu-based chipmaker said.

Gross margin this quarter may fall to between 1 percent and 5 percent from 31.3 percent last quarter.

“The forecast of a quarterly loss reflects market speculation in November and December in anticipation of the utilization [rate] falling to 35 percent [this quarter],” said UBS semiconductor analyst Jonah Cheng (程正樺), who is based in Taipei.

Revenues may fall by almost 50 percent to between NT$32 billion and NT$35 billion this quarter, from NT$64.56 billion in the fourth quarter, TSMC said.

The quarterly decline would exceed the 30-percent drop predicted by most investment banks, including Citigroup and Credit Suisse.

For this year, Tsai forecast revenues for the whole semiconductor industry could fall 30 percent, compared with an earlier estimate of mid-to-high single-digit percentage growth. The economic slump and customers’ excessive inventories had to be taken into account, Tsai said, adding that contract chipmakers could see an even greater drop.

With customer demand stagnating, TSMC estimated in October that it may trim spending on new equipment this year by more than 20 percent from the US$1.88 billion it budgeted for last year, he said.

But, Tsai said: “We are seeing some indications that we may be bottoming out in the first quarter of 2009.”

As indicated by the bill-to-book ratio adopted by the chipmaker for internal use, “the lowest level is over,” Tsai said.

Demand for handsets seemed to be recovering faster than for PCs, he said.

Communications chips made up the biggest chunk of TSMC’s revenues last quarter at 43 percent.

“January should be the bottom. Our survey shows that downstream [electronics] makers from all sectors are starting to build inventories in January in the form of rush orders,” Cheng said, adding that Apple Inc and IBM had posted impressive quarterly results.

“Most of our customers are waiting to buy [TSMC shares] until they are more certain of the rush order effect after the Lunar New Year,” he said, adding that TSMC may return to profit next quarter.

Separately, TSMC said it hoped to maintain a pay-out ratio of 80 percent, or NT$3 per share in cash dividends, based on last year’s earnings of NT$99.93 billion, which slid around 8 percent from NT$109.18 in 2007.